Procurement and Contracting

Practices in Construction
 Procurement and contracting in
Construction
• Procurement and contracting are the usual way
that business is conducted in construction
• Why procure?
In house
Way of doing things
Outsource
 One party has something that the other doesn’t
 One party can do something better than the other
 Procurement and contracting in
Construction
• Why contract?
Avoid risk of non performance or defaulting by
one party
Especially in construction ‘change clauses’
expose parties to more risks
Need to clearly stipulate the terms of agreement and
allocate risks to the party that manages them best
 Procurement and contracting in
Construction
 The construction industry is inundated with series
of standardized contracting documents prepared
by various professional and statutory bodies.
• These bodies try to clearly format and stipulate the
documents that can be used to efficiently execute
construction projects
– FIDIC (usually for international projects), EEC (for
works financed by EDF), NEC (UK, SA), GCAA (?)
(USA)
– The PPA has prepared Standard Bidding Documents
(SBDs)
 Procurement and contracting in
Construction
• Documents should be drafted to:
• In the bidding processes:
 Efficiently Pre-qualify potential tenderers so that they
may be invited/encouraged to tender (Doesn’t
unnecessarily disqualify potential bidders);
 Smoothly solicit tender offers;
 Encourage bidders to participate in bides (doesn’t specify too
much inconveniences and non standard procedures)
 Doesn’t create too much inconveniences and hard works on
clients (buyers)
Procurement and contracting in
Construction
 Such a tender document should generally:
 Require tenderers to submit particulars sufficient for the
employer to evaluate submissions and to shortlist tenders, or to
award a contract in a fair, equitable, transparent and competitive
manner
 Set out in a clear and unambiguous manner criteria by which
submissions are to be evaluated (evaluation criterion);
 Define the liabilities, rights and obligations of the parties to the
contract, if they agree to be abide by ;
 Define the nature, quality and quantity of supplies, services or
works to be provided in the performance of the contract;
 Contain provisions that do not unreasonably prejudice the
interests of either party; and
 Use clear and unambiguous language.
 Contracting/administration processes:
 Should facilitate a smooth running of the contract administration
processes
 Procurement and contracting in
Construction
• Documents covered in SBD
– Bidding Procedures
– Instructions to Bidders (Section 1)
– Bid Data Sheet (Section 2)
– Evaluation and Qualification Criteria (Section 3)
– Bidding Forms (Section 4)
– Eligible Countries (Section 5)
– Schedule of Requirements (all in section 6)
– Scope of Works
– Technical Specifications
– Drawings
– Bills of Quantities (or Activities Schedule)
– Contract
– General Conditions of Contract (Section 7)
– Special Conditions of Contract (Section 8)
– Contract Forms (Section 9)
 Procurement and contracting in
Construction
• SBD documents
– Scope:
• National Open ( &Restrictive) Tendering Documents (With or
w/o pre-qualifications)
– PPA has also drafted Open International Tendering documents
• Value and complexity of contract
– Not suitable for
» Works over US$10 million
» Complex works under US$10 million, such as large water
treatment plants
» Works designed by the Contractor (DB, Turnkey, PPP)
 Procurement and contracting in
Construction
» Common forms of project delivery in CI

M a jo r fo rm s o f c o n tra ct

DBB DB CM P PP

• SBD documents suitable for only for ‘price

only’ tendering
Procurement and contracting in
Construction
–For fixed price contracts:
•Admeasurements (unit price rate) for roads, buildings and other
forms of construction where work may not be well defined
•Lump sum (with activity schedule) contracts for buildings and
works where design is finished and work is well defined
Forms of contract

Fix ed pric e Cost Plu s

Lump Sum Unit Pric e Cost+ % cost Cost+Fix ed fee Cost+ Fix ed fee wit h GMP
 Procurement and contracting in
Construction
• Requirements:
– PPA advices Instructions to Bidders and General
Conditions of Contract to be used unaltered
– The rest are to be filled accordingly
– Generally users shouldn’t
• Delete any Section or page breaks of the SBD,
• Make any changes to the headers or footer of the SBD,
 Procurement and contracting in
Construction
• Processes in tendering
• Invitation to bid;
• Preparation and Issue of Bidding Documents;
– Bidding Period and Bid Receipt;
• Bid Opening;
• Bid Evaluation;
• Selection of Bidders; and
• Bid Acceptance, Contract Award and placement
 Invitation to bid
Should be designed to provide information that enables
potential bidders to decide whether to participate in a
bidding process or not
– Should include
• Date and tender reference number
• Name and address of the procuring entity
• Type of tender (open, short listed)
• Bid evaluation criteria and qualification requirement
• Brief description of work with intended completion period
• Place where to get tender documents and cost of purchase
• Tender requirements (eg bid bond)
• Date and place of submission of tender
• Place and time of opening of tender
Preparation and Issue of Bidding
Documents
– The PE should prepare the bid documents in
accordance to the appropriate requirements
– Bids according to SBD should be satisfy the
following:
• Language:English
• Currencies of transactions are in Birr
• Documents needed to be submitted:
» Filled bid submission form
» Priced quantities ( Bill of quantities or schedule rates)
» Bid security form (bank guarantee or bid bonds)
» Qualification information form
A. Bid Submission Form,
 Should be on a header paper and needs to be signed by the
authorized person
 It demands summary of the major requirements of the bid
documents like:
 Bid price and validity period (usually from 60-120 days
depending on complexity of process)
 Declaration of eligibility of contractor and proposed
subcontractors and suppliers (legal, interest conflict etc)
 Amount of advanced payment (up to 20% for buildings and
30% for roads)
 Declaration of full consent with the terms of the documents
and acceptance of PE’s right not to accept lowest bidder
 B. Bid security
– Purpose: the ensure that bidder accepts the bid if
selected winner and can be fortified if:
– Bidder withdraws the Bid after Bid opening during the
period of Bid validity;
– Bidder does not accept the ‘arithmetic’ correction of the
Bid price,
– In the case of a successful Bidder, if the Bidder fails
within the specified time limit to:
– Sign the contract; or
– Furnish the required Contract Security.
 B. Bid security
• Bid security in the amount (Birr) and form (certified cheque
or payable order, bank draft, letter of credit, or an
unconditional bank guarantee) as specified by PE
• Recommended amount:
B. Security Estimated cont value
5,000 30,000-500,000
10,000 500,001-1,000,000

50,000 1,000,001-5,000,000
100,000 >5,000.000
• Should be in the name of all ‘JV’ bidders
• Shall be valid for at least for 28 days after validity of bid or
as extended by bidder
• To be released within one week after conclusion of contract
C. Priced BoQ or AS Signed by a
person authorized
Schedule of Requirements
•Specifications,
• Drawings and
• Bill of quantities form part of the contract document while
the employer also need to provide
•Scope of work to potential bidders
 C. Priced BoQ or AS Signed by a
person authorized
Scope of work: is a brief description of the work to be performed.
Needs to include:
 Adequate description of the work
 Site location
 Climate and weather information
 Site investigation studies and reports
 Topographical data
 Access details
 Details of other ongoing or future works to be carried out by
other contractors during the Contract period
 Information regarding disposal, borrow and quarry areas
including royalty payments as applicable
 Any other pertinent information regarding the site and the works
 etc
 C. Priced BoQ or AS Signed by a
person authorized
• Specification: States the required standards of
workmanship, materials, and performance of the
related goods and services to be procured
• Usually specifies that all the goods and materials to be
incorporated in the works be new, and of the latest model
• Usually based on standards and codes and need to be non
restrictive
• Drawings: Depict the schematic layout of the
work to be done.
• Can be supplied in a separate document if larger paper sizes
used
 C. Priced BoQ or AS Signed by a
person authorized
• Bill of Quantities or Activity Schedule
–Lump Sum Contract: Activity Schedule
–Admeasurement Contract: Bill of Quantities
–Is comprised of:
» Preamble: States inclusiveness of unit prices and
method of measurement used
» Work item: provides clusters of the items in the BoQ
in terms of nature, location etc
» The detailed BOQ
» Days work schedule
» Summary of BoQ
 C. Priced BoQ or AS Signed by a
person authorized

• Priced BoQ (Activity Schedule)

– Provides the rates at which each activity in the
BoQ (AS) is to be performed
• Price should include all duties, taxes, and other
levies payable by the Contractor under the Contract
• Rates and prices can be adjusted if provided in the
SCC (recommended for projects lasting over one
and half year)
Ln Mn En
pn  A  b  c  d  etc.
Lo Mo Eo
 C. Priced BoQ or AS Signed by a
person authorized
• BoQ includes priced
• days work schedule rate
– Purpose: To provide payment mechanism for unforeseen items
– Comprises a rated list of the various classes of labour, materials,
and constructional plant for which basic day work
– Conditions under which the Contractor will be paid for work
executed on a day work basis needs to be stated
• Provisional sum
– A general provision for physical contingencies to be included in
the Summary Bill of Quantities
– Usually used to facilitate budgetary approval
• Precedence: Specification>Drawings>BoQ
 D. Documents certifying
Eligibility and Qualification
 Eligibility (for all members in case of JV)
• Legal capacity
– Ethiopian contractor: registration certificate from MoWUD, Ministry of
works, etc demonstrating a registered contractor
– Trading licence and suppliers registration certificate
– Issuing attorney general for International bidders
• Insolvency
– Not under legal pursuit for insolvency
• Fulfilled duty to pay tax
– Tax clearance certificate and VAT registration (if needed)
• Others
– Conflict of interest: (bidder, subcontractor or joint venture) never related
consultant (potential) or its affiliates (needs to be declared in bid
submission form)
– Gov’t enterprises can only compete if legally and financially autonomous
and are not dependent agencies of the Employer
– Country eligibility: UN embargo or Unilateral FDRE embargo by the or
Donor specification
– Not debarred of public procurement for ‘corruption’, ‘fraud’ ‘bid
collusion’
 D. Documents certifying
Eligibility

and Qualification
Qualification form (provided in section 4)
Prof, tech, financial, equipment, managerial, reputation, personnel to
execute the work
» Experience in work of similar nature and size in the past (five
years), details of similar work underway (at least 70% complete),
(all as a prime contractor) references (usually from 1-3 projects is
enough)
» Average/total value of work over the past (3-5 years depending
size of contract) should be (usually about 2.5 times estimated
annual cash flow of the project
» Major items of Contractor’s Equipment proposed for carrying out
the Works
» Qualifications and experience of key personnel proposed for
administration and execution of the Contract
» Proposed subcontracts and firms involved
» Financial reports for the last five years
 D. Documents certifying
Eligibility and Qualification
– Evidence of access to financial resources to meet the qualification
requirements (at least the estimated payment flow over approximately 3
months at the average)
– Information on current litigation in which the Bidder is involved
– Proposed Program (work method and schedule).
• In case of JV, beyond all the above
– Power of attorney of the signatory(ies) of the Bid authorizing signature of
the Bid on behalf of the joint venture.
– Agreement among all partners of the joint venture showing
» Joint and several responsibility
» One partner is shown as in charge to incur liability and receive
instruction
» The execution of the work is done with the party in charge
– Annual volume of work and liquidated asset for ‘JVs’ can be added in
evaluation but each at least must satisfy 25% of the requirements while
the partner in charge should at least 40%)
 Bidding Period and Bid Receipt
• During the bidding period, the PE should:
– Hold any pre bid meeting or site visit and issue minutes
promptly;
– Promptly respond to requests for clarifications from Bidders;
– Issue amendments to the Bidding Documents if necessary;
– Receive and record sealed bids from Bidders or make a Bid
Box available up to the deadline for bid submission;
– Close bidding at the precise date and time of the deadline and
ensure that no late bids are received; and
– Keep all bids received secure until the time for bid opening.
 Bid submissions:
– Three signed and sealed in two envelopes (one original, two
copies and clearly marked so)
– Address of PE, name and reference number of tender and
warning not to be opened before bid opening date to be
printed on both envelopes
– Bidder address on inner envelop
– Shall be delivered by deadline, late bides need to be returned
unopened
– Bidders can withdraw, substitute or modify their bids by
giving notice in writing before the deadline
– Such needs to be marked so
 Bid Opening
• PEs need to ensure that all bids that were received on time
are accounted for, before starting the Bid Opening
– At the time, place specified and with the presence of bidders (or
legal rep)
– Withdrawals envelopes read first ( not opened) followed by
substitutions (substituted not to be opened) then modification
read out with corresponding bid
– Bidders' names, Bid prices, Discounts, Bid modifications or
withdrawals, Presense or otherwise of Bid Security etc needs to
be announced immediately
– PE needs to prepare a minutes
– No bid to be rejected at opening processes except those delivered
late
 Bid Evaluation
• Bid evaluation process to be strictly confidential
• PEs, at their own description, can ask clarification of bid but such
clarification shouldn’t change the substance of the bid- except
arithmetic error
• Before evaluating a bid: make sure of:
– Satisfaction of eligibility criteria
– Properly signed
– Satisfies required security
– substantially responsive to the requirements:
» Subestantially doean’t affect the scope, quality, or performance
of the Works
» Substantially doesn’t limit Employer’s rights or the Bidder’s
obligations under the Contract
» Doesn’t unfairly affect the competitive position of other bidders
 Bid Evaluation
– Error correction:
• Arithmetic
• Subtotals rule over total
• Words rule over figure except for arithmetic discrepancy
– Evaluation:
• To be in accordance to the evaluation and qualification criteria
specified in the Bidding Documents
• Shouldn’t include provisional sum but can include, days work
(if competed up on), discounts, variations or alternative
(including operational costs) offers
• No preference margin allowed
 Selection of Bidders
• Lowest bidder (eligible and qualified)
– Critics: It can often result in unreasonably low bids being
either accidentally or deliberately submitted which may
cause extensive delays, cost overrun, serious quality
problems, increased number of claims, disputes,
litigation etc.
– Modifications:
• France and Portugal: disqualify abnormally low bids
• Italy and Taiwan use nearest to average bids (Italy, lowest
nearest)
– Other use multiple evaluation criteria (e.g. Japan)
• Winner is the one scored the best on the ranked attribute